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IRS.gov Website
Publication 970
taxmap/pubs/p970-037.htm#en_us_publink1000178586

Figuring the Amount Not Subject to the 10% Tax(p60)

rule
To determine the amount of your distribution that is not subject to the 10% additional tax, first figure your adjusted qualified education expenses. You do this by reducing your total qualified education expenses by any tax-free educational assistance, which includes:Do not reduce the qualified education expenses by amounts paid with funds the student receives as:If your IRA distribution is equal to or less than your adjusted qualified education expenses, you are not subject to the 10% additional tax.
taxmap/pubs/p970-037.htm#en_us_publink1000178592

Example 1.(p61)

In 2013, Erin (age 32) took a year off from teaching to attend graduate school full-time. She paid $5,800 of qualified education expenses from the following sources.
 Employer-provided educational assistance
 (tax free)
$5,000 
 Early distribution from IRA
 (includes $500 taxable earnings)
3,200 
    
Before Erin can determine if she must pay the 10% additional tax on her IRA distribution, she must reduce her total qualified education expenses.
 Total qualified education expenses$5,800 
 Minus: Tax-free educational assistance−5,000 
 Equals: Adjusted qualified
 education expenses (AQEE)
$  800 
Because Erin's AQEE ($800) are more than the taxable portion of her IRA distribution ($500), she does not have to pay the 10% additional tax on any part of this distribution. However, she must include the $500 taxable earnings in her gross income subject to income tax.
taxmap/pubs/p970-037.htm#en_us_publink1000178595

Example 2.(p61)

Assume the same facts as in Example 1, except that Erin deducted some of the contributions to her IRA, so the taxable part of her early distribution is higher by $1,000. This must be included in her income subject to income tax.
The taxable part of Erin's IRA distribution ($1,000) is larger than her $800 AQEE. Therefore, she must pay the 10% additional tax on $200, the taxable part of her distribution ($1,000) that is more than her qualified education expenses ($800). She does not have to pay the 10% additional tax on the remaining $800 of her taxable distribution.